Gross puts money where his mouth is, boosts Treasuries to highest level since 2010

Pimco founder has been advising investors to sell riskier assets, buy government debt

May 9, 2013 @ 5:41 pm

Pacific Investment Management Co.'s Bill Gross raised the holdings of Treasuries in his flagship fund at to the highest level since July 2010 while warning that investors face potential losses from central-bank policies.

The proportion of U.S. government securities in the $292.9 billion Total Return Fund increased to 39 percent in April, from 33 percent in March, according to data on Newport Beach, California-based Pimco's website. Mortgage holdings rose to 34 percent, from 33 percent in March, which was the lowest level since August 2011. The company doesn't comment directly on monthly changes in its portfolio holdings.

Gross, the founder of Pimco and manager of the world's biggest bond fund, has been advising investors to sell riskier assets and buy government debt, including inflation-linked securities and nominal Treasuries as central banks pursue unprecedented stimulus measures.

Treasuries, for now “are a better alternative than cash,” Gross wrote in his monthly investment outlook on May 1. “Current policies come with cost, even as they magically float asset prices higher. Negative real interest rates, inflation, currency devaluation, capital controls and outright default” are among the costs, or ”haircuts,” from global central banks' unprecedented monetary stimulus.

Central Banks

Other central banks around the world are pursuing monetary policies similar to the U.S. Federal Reserve to boost domestic economic growth. The U.S. has held its target interest rate at a record low zero to 0.25 percent since December 2008 and spent $2.3 trillion purchasing Treasury and mortgage-related debt from 2008 to 2011 in the first two rounds of quantitative easing. The Fed buying this year has been divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities.

The European Central Bank last week cut its key interest rate to a record low 0.5 percent from 0.75 percent. Australia cut borrowing costs to a record this week and India and South Korea trimmed borrowing costs this month. The Bank of Japan on April 4 announced it would double monthly bond purchases. The dollar today strengthened beyond 100 per yen for the first time in four years.

Fund Returns

Gross reduced his holdings of non-U.S. developed nations' debt to 10 percent in April from 11 percent the previous month. Investment-grade credit holdings were cut to 7 percent from 9 percent.

The portion of the Total Return Fund's emerging-market debt increased to 8 percent in April, from 7 percent in March. Municipal-bonds holdings were steady at 5 percent. The fund's net cash-and-equivalent position was at negative 8 percent, compared with negative 3 percent the previous month.

The fund returned 6.74 percent over the past year, beating 90 percent of its peers, according to data compiled by Bloomberg. It returned 0.27 percent in the past month, beating 54 percent of its peers.

The Total Return Fund (PTTRX)'s government and Treasury debt category includes fund holdings of U.S. Treasury notes, bonds, futures and inflation-protected securities.

Pimco, a unit of the Munich-based insurer Allianz SE (ALV), managed $2.04 trillion in assets as of March 31.

-- Bloomberg News --

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